Pascal Morosini (Clearstream)
What solutions can we offer the market to remove the obstacles in the repo market?

Marcel Naas (Eurex Repo)
Do you mean margin collateral or collateral for trading? The question is what is accepted as margin collateral? In GC Pooling, for example, a cash provider receives collateral which can be used only to do another transaction or can be given to the ECB, but it can’t go to the central counterparty as margin.

Is that the limitation or is the limitation that I can’t trade all the collateral which is currently available?
But cash providers would still have to accept a range of 53,000 securities, which are currently ECB eligible. When the range was widened, we had to stay with the 8,000 securities we currently have in our core basket of GC Pooling, and nothing below a single A-.

Andreas Biewald (Commerzbank)
Perhaps you can price such a service? Let market participants pay for building up a second group of central counterparty partners.

Andreas Biewald (Commerzbank)
The willingness is there. I think you will find people for whom it will make sense to pay a 10-basis-point fee. They will be able to demonstrate that a particular Bund is trading in the market again, with a central counterparty and the correct margining and pricing.

Ben Wright (Financial News)
You would then have a tiering of counterparties?

Andreas Biewald (Commerzbank)
Their entry requirements would be different.

Marcel Naas (Eurex Repo)
That would mean that the central counterparties in Europe would take over the current role of the central banks.

Surely the central banks have a different role?

Andreas Biewald (Commerzbank)
Does Eurex Clearing have access to the central bank pricing mechanism as a central counterparty?

Pascal Morosini (Clearstream)
We have access only to prices of bonds allocated to the Bundesbank. Back on the pricing issue: if you agree that you should convince the risk manager that a Bloomberg price is not the only principal criterion for sizing the liquidity of a security, what would be the other criteria to convince them to trade your securities?

Michel Albertini (BNP Paribas Fortis)
I think it would aid our cause if we had the same transparency as organised markets such as equities, for example. It would enable you to assess the daily volumes traded on each security and put in place triparty eligibility criteria that you won’t take more than X% of the daily volumes traded on each security.

Ben Wright (Financial News)
Wouldn’t this suggest that equity, as the most liquid and price transparent of securities, is a good form of collateral for repo and that you should start using it a bit more?

Brian Rozen (Barclays Capital)
Yes, the triparty providers came back to equities quicker than they came back to ABS. It is counter-intuitive to the capital structure, but it is just about pricing transparency.

Rajen Patel (Morgan Stanley)
Prime index equities trade very tight to government bonds – 10 or 15 basis points. People are comfortable with prime index equities, as the benefits of exchange-traded products give clients additional transparency of pricing and volumes.

Ben Wright (Financial News)
Is the repo industry using equities? I understood in the US equities are frequently used as collateral, but not so much in Europe.

Marcel Naas (Eurex Repo)
It is changing. During the crisis, banks’ risk management departments found out that equities, unlike fixed income, always had a price, that the market was liquid and that you could sell them using exchange rates. That is why GC Pooling has a working committee looking into equities.

Cash providers’ treasury departments are saying they are prepared to be cash providers against equities. That is why at Eurex Repo we’d like to establish a standardised basket for equities where the equity finance desks participate in the same market environment.

Leonie Clark (State Street)
At State Street we’re also moving into the equity space. Not only because it is liquid – the Lehman default showed that it was very easy to liquidate those positions – but also because you are not competing with central bank programmes. This gives you increased availability and choice

Leonie Clark (State Street)
Yes, although some institutional investors historically approved fixed income only. Ideally, investors would take both equity and fixed-income collateral.

Pascal Morosini (Clearstream)
In the triparty system, asset managers, insurers and, to an extent, pension funds are becoming more active. Following loss of trust engendered by the crisis, more and more investors are switching from unsecured to secured products.

Ben Wright (Financial News)
How has triparty repo developed in the wake of the crisis? Is it a far bigger proportion of the market now?

Pascal Morosini (Clearstream)
Triparty allocation has grown, mainly because of centralbank access and initiatives such as Euro GC Pooling, but triparty repo has decreased since the summer of 2007 when the financing of ABS, MBS and CDOs slowed down enormously.

We recovered a bit with the financing of corporates, in the context of volumes stabilising since the Lehman default. However, the market is now full of cash and we don’t see triparty repo volumes picking up.

Andreas Biewald (Commerzbank)
That is likely to change when the enhanced central bank framework ends at the end of the December 2010 when banks will again look at alternatives and re-establish triparty interest. If the A- to BBB- range is eliminated, then there should be more financing demand and hopefully cash providers available who are allowed to buy.

Pascal Morosini (Clearstream)
Another trend that we see developing in triparty collateral management is that the collateralisation for credit support annex contracts, derivatives and also lending and pledge arrangements have developed quite a lot.

Rajen Patel (Morgan Stanley)
The operational efficiency of posting collateral via triparty for margining purposes is significant. Institutions have many differing collateral posting requirements so having the operational flexibility of the triparty model enables efficient collateral allocation and hence keeps costs to a minimum.